In Canary Wharf, around one in every six offices is unlet. But walking around, it feels much emptier than that. Not all let buildings are occupied five days a week, and others might be empty all week as the tenants – unable to break free from a multi-year lease commitment to their landlord and who do not need to use the building – may be trying to sublet them.
Official data suggests that rents in this part of London are as high as £55 per square foot of space. But one senior London office agent, speaking anonymously, says the real cost of renting a building here, once lease incentives and rent-free periods designed to encourage tenants into the building are subtracted from the headline figure, is around £25 per square foot.
Canary Wharf is an extreme example of what happens when low vacancy causes rents to crater. But the problem is bigger and more complex than just one London business district. The question mark around workspaces post-Covid-19 combined with the threat of recession means businesses are less willing to rent space. Just as commercial real estate asset values look like they may be slowly recovering following the spike in interest rates last year, landlords must contend with the threat of vacancy dragging down their rents.